Ailing economy bites insurance sector

Published: 21 June 2015
Eight short-term insurance companies reported losses in the full year to December 2014 as Zimbabwe's moribund economy continues to affect the country's insurance industry.

A report by the Insurance and Pensions Commission (Ipec) released yesterday revealed that the increase in losses was due to a more difficult macro-economic environment faced by insurers in 2014 compared to 2013.

Zimbabwe currently has 23 short-term - non-life - insurance firms.

"While the overall profitability of the non-life insurance industry deteriorated during the year under review, the profitability of the core business of the insurers, that is underwriting improved," said Ipec.

The survey noted that profit volumes recorded by non-life insurers decreased by 14,74 percent from $12,02 million for the year to December 31, 2013 to $10,25 million for the period under review.

"Profitability for both direct insurance and reinsurance business deteriorated during the period under review mainly owing to depressed business growth in the wake of increasing operating expenses, claims and commissions," the report said.

Non-life insurance refers to the coverage that consumers subscribe to so as to protect themselves or their belongings, against risks, perceived or natural.

In the full year to December last year, the non-life insurance industry witnessed depressed growth of 3,48 percent in gross premium written from $207,69 million for the year ended December 31, 2013 to $214,91 million.

"The depressed growth in the volume of business is in tandem with the slowdown in the growth in gross domestic product (GDP) at market prices from 8,86 percent for the year ended December 31, 2013 to 3,9 percent for the year under review.

"This is explained by the fact that generally the insurance sector follows the fortunes of the economy," said Ipec.

Operating expenses increased by to $52,99 million from $47,99 million, a 10 percent rise while net incurred commission amounted to $8,12 million for the period under review, a  67,74 percent surge from $4,84 million reported prior year comparative.

The decline in total profit after tax recorded by direct non-life insurers resulted in the return on equity (ROE) and return on assets (ROA) deteriorating from 18,52 percent and 7,32 percent for prior period to 13,16 percent and 5,73 percent for the period under review.

"Notwithstanding the decrease in the ROE and ROA, the returns generated by the non-life insurers were still considered relatively attractive given the returns offered by other investment vehicles within Zimbabwe and abroad," Ipec said.

In the period under review, underwriting profits increased from $7,05 million for the year ended December 31, 2013 to $8,39 million for the year under review.

Gross claims amounting to a total of $83,04 million were paid during the year under review.

Motor insurance recorded the highest loss plus commission ratio of 82,15 percent,  the high frequency of claims in motor insurance though the same claims are usually of low severity.

"However, fire insurance was the most profitable line of business since it recorded the lowest loss plus commission ratio of 27,20 percent.

"While fire insurance was the most profitable class of business, insurers should be mindful of the fact that claims under fire insurance are less frequent yet their severity is relatively high compared to motor insurance," said Ipec.

According the findings, the contribution of the non-life insurance industry to the country's GDP remained largely unchanged as evidenced by the marginal decrease in the penetration ratio from 1,54 percent for the period under review to 1,53 percent prior period.
- dailynews
Tags: Zimbabwe,

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